John Ogilvy, Branch Manager of OEC Group’s St. Louis office, discusses how supply chain issues have become much more complex, and he explains why a downward trend in ocean rates is not the panacea for shippers across the industry.
What are the biggest current logistical challenges in the industry?
While it is logical to believe that volume slowdowns should have solved supply chain issues, the reality is that challenges persist across the board. Major congestion still exists coming into gateway ports as port systems and workers on the ground are still recovering from the historic surges of freight they’ve withstood over the last few years.
However, the current challenge is dealing with the severe congestion of cargo on the way out of ports and into the inland distribution network. Inland rail networks are backed up like we’ve never seen before; significant ground stacking and rail yard congestion persist at inland transfer points across the United States and Canada; and some rail companies are imposing temporary embargoes to many inland destinations. Chassis shortages and labor issues have also been adding to all the industry challenges.
How does the current situation impact vessel and warehousing/storage capacity?
Vessel capacity is an interesting piece of the puzzle because it was such a battle to get space onboard just a year ago. It’s much easier now, but capacity will soon be ticking downward. As a result of increased capacity and dipping demand, carriers have started cancelling services and blanking individual sailings to manage profitability and efficiency.
Warehousing is in a much more dire position as only three percent of all warehousing space in the United States is currently available – with zero indicators of improvement anytime soon. A huge contributing factor in the storage capacity shortage is that many retailers are sitting on seasonal goods that arrived too late and are holding on to it until the proper season rolls back around.
Have all these COVID related issues come to an end or is the market morphing into something different?
Some industry issues have improved. Countries are no longer shutting down, container equipment is not being misallocated, and the major bottlenecks that formed at the height of the industry’s struggles have dramatically subsided.
What we are currently dealing with are the reverberations from the direct COVID related problems, such as labor-related challenges and economic repercussions. I believe there are a lot of challenges we will have to overcome before the market normalizes. However, shippers would be mistaken to believe that we will return to the exact same pre-pandemic conditions. Those days are long gone.
What do you advise shippers to do to adjust to these new market challenges?
Since the market is quickly evolving and adjusting to new realities, shippers need to immediately assess their logistical situations, develop strategies for success in the short-term, plan for sustained long-term supply chain efficiency, and overall, learn to execute properly in the transportation sector. Being able to do this now is arguably more important than at any time in our history. However, not many people can adequately plan their supply chains in this manner. Therefore, if they have not already done so, shippers need to begin an honest and open dialogue with their logistics providers so that they can understand the market situation, design a strategy that ensures their cargo will be in the right place at the right time, and in turn, ensure the viability of their business.